Senate Budgeters Cut Pension Contribution By $100 Million

The Senate Budget and Taxation Committee voted Thursday to cut $100 million in contributions to the State Retirement and Pension System for fiscal 2014. The committee tied the unexpected move to passage of legislation that will eventually ensure the state puts aside enough money for employee and teachers pensions. But the cut also adds a year to achieving long-term funding goals for those pensions.

As it finished work on Gov. Martin O’Malley’s $37 billion budget, Senate budgeters voted unanimously to cut some of the proceeds from the increased pensions contributions of state workers and teachers. Since 2011, those employees pay 7% of their paychecks toward their own pensions, a two percentage point increase designed to help reduce pension liabilities that are at least $19 billion.

The changes in pension contributions and benefits passed in 2011 were designed to make the pension system 80% funded in 2023. With $40 billion in current assets, the pension fund now has enough money to cover about 65% of future obligations, assuming it meets its long-term target of 7.75% return on investment. Some analysts and a major bond rater consider that rate unrealistically optimistic.
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